Times Tough for Energy Overhaul

Struggling Economy, Falling Oil Prices Complicate Obama Team's Agenda

WASHINGTON -- President-elect Barack Obama and his energy team could face the most inauspicious climate in years for pushing ahead with their plans to remake U.S. energy strategy.

Mr. Obama plans soon to introduce his energy and environment team, which will include Nobel Prize-winning physicist Steven Chu as energy secretary and former Environmental Protection Agency Administrator Carol Browner as White House energy adviser.

The team's makeup shows that Mr. Obama plans to put a heavy emphasis on combating climate change and promoting technologies to wean the U.S. off imported oil. He is packaging such priorities as a way to boost employment and help the economy by pouring money into efficiency projects.

ENLARGE

But the next administration will face a range of obstacles on the energy front, from plummeting oil prices and a declining economy to potential rifts among Mr. Obama's own advisers.

In a sign of one major internal difference, Mr. Chu has called for gradually ramping up gasoline taxes over 15 years to coax consumers into buying more-efficient cars and living in neighborhoods closer to work.

"Somehow we have to figure out how to boost the price of gasoline to the levels in Europe," Mr. Chu, who directs the Lawrence Berkeley National Laboratory in California, said in an interview with The Wall Street Journal in September.

But Mr. Obama has dismissed the idea of boosting the federal gasoline tax, a move energy experts say could be the single most effective step to promote alternative energies and temper demand. Mr. Obama said Sunday that a heightened gas tax would be a "mistake" because it would put "additional burdens on American families right now."

No U.S. president has made significant headway altering America's energy habits during a period of falling oil prices. After hitting an all-time peak this summer, U.S. gasoline prices have sunk to their lowest level in years. Experts predict prices will remain weak until the world economy begins to revive.

Falling prices and scarce credit already are putting the lid on hundreds of alternative-energy projects across the country, from wind farms to biofuel refineries. Reviving those projects, even with significant government incentives, won't be easy.

"There's no way we can create a better future without the price of [fossil-fuel-based] energy going up," said Jay Hakes, who headed the Energy Information Administration under President Bill Clinton. "But it's tough for a politician to get up and say 'Your prices are going to have to go up.' "

Few members of Congress support increasing the federal gasoline tax, and the last effort to impose a new energy tax -- under Mr. Clinton in 1993 -- fell apart in Congress.

Mr. Chu, who couldn't be reached Thursday for comment, said in the September interview that the federal government should impose higher efficiency standards for buildings and electronics. He added that the biggest misconception about energy policy is that "if you went to an energy-efficient economy, you will kill the economy. That is just demonstrably not true."

But there are differences among Mr. Obama's advisers over what constitutes sound energy policy.

Ms. Browner has been a critic of proposals to loosen restrictions on oil and natural gas drilling in the outer continental shelf, arguing that such moves would do little to reduce U.S. dependence on foreign oil and risk damaging U.S. coastlines. Her views on that issue put her sharply to the left of Mr. Obama's nominee for national-security adviser, retired Marine Corps Gen. James Jones, who supports expanded offshore drilling.

Ms. Browner's background and public comments also indicate she will push energy policy in ways that stir opposition from auto makers, coal-fired utilities and other industries. She has called publicly for letting the EPA reconsider whether greenhouse gases "endanger" health or welfare -- the legal trigger for regulating them under the Clean Air Act -- and for completing rules that would attempt to measure the greenhouse-gas emissions of renewable fuels like corn ethanol. Major business groups are already trying to persuade the EPA not to regulate greenhouse-gas emissions under the Clean Air Act, warning it will lead to a cascade of costly mandates covering bakeries, breweries, schools and many other relatively small emitters.

The next administration also will have to wrestle with the government's unwieldy energy bureaucracy, which critics say has stymied effective policies. Mr. Chu is poised to take over an agency that, despite its name, has little power to set energy strategy, and whose budget for research and development has become increasingly balkanized.

Most of the Energy Department's budget goes toward funding atomic-energy-defense activities, such as cleaning up nuclear and chemical waste at old weapons plants. The agency's budget for research in renewable, fossil and nuclear energy has fallen sharply over the years, and much of its R&D funding is tied up in projects earmarked by members of Congress for their home states, according to a report published in September by Securing America's Future Energy, a Washington nonprofit.

"Contrary to what everyone thinks, there's very little the Department of Energy can do to affect the types of fuel the country uses or the amounts they use," said Paul Portney, former president of Resources for the Future, a Washington think tank.

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